The role of protection in navigating IHT reform

Inheritance tax (IHT) reform is changing protection advice. Clients are focusing more on protecting their financial legacy, making IHT planning a key part of protection.

Frozen thresholds, tightening reliefs and a more assertive HMRC mean more estates risk an IHT bill. Clients’ ability to absorb a sudden tax hit is questionable. Royal London’s financial resilience report found that 28% of mid-lifers (aged 30–49) could cope financially for just one month if they were unable to work due to illness, and 37% have less than £1,000 in savings. This fragility exists even among higher earners, those most likely to face an IHT bill.

The net gets wider

From April 2026, Agricultural Property Relief (APR) and Business Property Relief (BPR) will be subject to a new £2.5 million cap on assets eligible for 100% relief. Any value above this allowance will qualify for only 50% relief, creating an effective 20% IHT rate on the excess.

While these reforms directly affect farmers and business owners, the implications reach far beyond the rural economy. With the nil‑rate band frozen for over 15 years and property values rising, more ‘urban’ families risk unexpectedly breaching IHT thresholds.

Tax planning is only half the story. The other half is liquidity, ensuring the estate has access to funds when a liability arises. Without this, families may be forced into distressed sales of property, land, or business assets.

Could protection be the liquidity generator?

Against this backdrop, protection products are invaluable, not only to cover known liabilities but to provide flexibility if valuations change or reliefs are reduced.

• Whole of life can provide a sum assured to meet fixed or anticipated IHT bill 
• Joint life second death (JLSD) can be useful for customers with substantial assets who may be cash poor and need to cover a potential IHT bill 
• Gift inter vivos can help cover the tapering liability if a donor dies within seven years of making a gift 
• Trusts ensure customers loved ones can access funds quickly, without delays from probate or IHT

And with pensions due to be brought into the IHT net from April 2027, the protection landscape could shift again. Advisers are already adapting: Royal London’s H1 2025 interim results show protection new business up 14% to £455 million, with strong demand for whole of life and JLSD policies.

Professional connections

Complex IHT cases are rarely solved by one professional working alone. Advisers who cultivate strong connections can deliver greater value.

• Solicitors can support planning business ownership structures, partnership agreements, and property titles to maximise relief eligibility 
• Will writers help ensure the estate is properly structured whilst maximising family financial planning opportunities 
• Tax specialists/accountants are key in ensuring accurate valuations and securing available reliefs

Formal referral arrangements or joint-client meetings can transform the quality of outcomes. And under Consumer Duty, holistic collaboration is a genuine route to better results.

Financial fragility

The Royal London resilience data underlines a growing paradox that many households are asset-rich but cash-poor. Higher earners are more likely to hold protection products (42% of mid-lifers have some form of cover), but they also face liquidity challenges if hit with a sudden IHT bill on an asset they don’t wish to or can’t sell.

This makes the case for whole of life and JLSD policies even stronger by converting a regular premium into a payout when it’s needed most. And when set up in trust, they bypass probate delays and IHT.

Supporting client outcomes

Discussing IHT in protection advice isn’t about fear, it’s about showing how changing rules, lost reliefs, and shifting liabilities can impact families. The earlier the conversation, the more options remain.

Protection reviews are a good entry point. Clients may find existing cover has been based on outdated valuations, and their estates may now exceed certain thresholds. A gifted deposit, a business transfer, or even a surge in local property prices can all tip a family into the IHT net.

Let’s think differently about protection advice

The tightening IHT environment and HMRC’s growing scrutiny are reshaping how advisers should approach protection. Whole of life, JLSD, gift inter vivos, and trusts are no longer niche tools, they are central to preserving family wealth.

Advisers will stand out by combining technical product expertise with effective professional collaboration, making protection an integral part of a joined up estate plan.

This article was first published in The Intermediary, August edition.